Why Tech, Not Branches, Is King For Nigerian Banks

The need to reduce operational costs, become more efficient, reach the unbanked and remove long queues are some of the reasons why digital financial technology will be king in Nigeria’s financial services industry, according to BusinessDay findings.

From 1892, when the first commercial bank was established in Lagos, the banking business in Africa’s largest economy has evolved to a point where customers can now complete transactions at the comfort of their homes.

Accenture reports that financial institutions (FIs), which are truly “all in” on technology or “digitally active,” boost financial returns with those banks pulling ahead of those struggling with digital transformation.

From a few years ago when ‘banking’ in Nigeria only conjured images of long queues, tally numbers, paperwork, pressure to process transactions within working hours, awaiting physical approvals on transactions, Lamin Manjang, CEO of Standard Chartered Bank Nigeria, says through the recent impact of technology and financial literacy, the word ‘Bank’ now connotes different reactions to different people.

“Personalised financial growth, opportunities for business collaborations, access to foreign investment opportunities, transferable generational wealth, and financial security all on one’s terms are some of the prevailing thoughts for customers,” he states.

Nigerian banks have continued to introduce digital products into the financial sector and their operations, driven by the need to eradicate long queues in banking halls, make cash transactions easier and faster and resolve other issues associated with payments and financial transactions. This is believed to have contributed to the growth reported in banks’ revenue from e-transactions.

Analysis of the nine-month financials of Nigeria’s five systemic tier-one banks (GTBank, Zenith, Access, UBA, and First Bank) shows earnings from e-transactions grew by over 100 percent since 2014 to N170 billion in 2021.

Over 50 percent of consumers now interact with their banks through mobile apps or websites at least once a week – compared to just 32 percent two years ago, according to NCR, one of the world’s leading enterprise providers of software, hardware, and services for banks, retailers and telecoms.

“But to reap the rewards, financial institutions must increase their investment in transformative technologies,” NCR states.

In Nigeria, one of such transformative technologies is agency banking, an initiative Fintechs are tapping to compete with traditional banks.

“In December 2021, as part of the digitization journey we embarked on a few years ago towards enhancing our processes, we closed down 10 of our branches in Lagos and Abuja and made significant investments towards optimizing our operating channels, products, and service solutions to suit the demands of our clients,” Manjang says.

According to findings by Bloomberg, Standard Chartered plans to close about 50 percent of its Nigerian branches to deepen its focus on digital banking.

The Nigerian unit of the London-listed lender plans to reduce its brick-and-mortar presence in Africa’s most populous nation to 13 branches from the current location of about 25.

“For Standard Chartered and other banks, shifting away from a strategy that focuses on bank branches towards the branchless makes sense,” Ashley Immanuel, CEO of EFInA, notes.

This is because bank branches are expensive to operate and the “traditional model is just not a business case for reaching the low-income group. That’s the reason why banks haven’t been able to do more to drive financial inclusion.”

Analysis of the financial report of five Nigerian banks showed that their aggregate operating expense jumped by over N30 billion between the first half of 2020 and 2021.

No wonder, two tier-one lenders – Access Bank and First Bank – are building networks of authorized agents to help sell their products and services in areas that would ordinarily require a bank branch.

Checks by BusinessDay show that most of the agents, especially those in the rural communities, represent more than one service provider and require less operating cost as the majority of the vendors have existing infrastructure due to their already established petty trade businesses.

While many Nigerian banks came late to the agency banking party as the new generation of Fintech companies have carved their niche and are swiftly closing widening gaps between yesterday and tomorrow’s consumer banking needs, analysts say they expect more Nigerian banks to adopt the less branch more digital presence strategy to reduce their rising cost of operations and deepen market penetration.

But, to ensure all the services consumers enjoy in brick-and-mortar banks can also be accessed through digital touchpoints, EFInA says the industry players need to partner the industry regulator.

One of such services is the ability of banking agents to create a Bank Verification Number (BVN) for unbanked customers, an infrastructure that is mostly available to traditional banks.